related to ipcc law on bonus act usefull for law students

1. PAYMENT OF BONUS ACT
1965
By
M.A.B.Prasad
1

2. Bonus-History
The practice of paying bonus in
India appears to have originated
during First World War when
certain textile mills granted 10% of
wages as war bonus to their
workers in 1917.
In certain cases of industrial
disputes demand for payment of
bonus was also included. In 1950,
the Full Bench of the Labour
Appellate evolved a formula for
determination of bonus.
2

3. Introduction
An Act to provide for the payment of bonus to persons
employed in certain establishments on the basis of
profits or on the basis of production or productivity
and for matters connected therewith.
It extends to the whole of
India
Every other establishment in
which twenty or more persons
are employed on any day
during an accounting year.
3

4. Bonus - Applicability
(a) Every factory (as def. in Factories Act), & (b) Every other
establishment in which 20 or more persons (less than 20 but 10
or more if appropriate Govt. notifies) are employed on any day
subject to certain exemptions.
(b) Bonus to be paid within eight months from the expiry of the
accounting year.
 Establishments to include departments, undertakings and
branches
 Where an establishment consists of different departments or
undertakings or has branches, whether situated in the same
place or in different places, all such departments or
undertakings or branches shall be treated as parts of the same
establishment for the purpose of computation of bonus
4

5. IO NS
IN AT
D EF
5

6. Accounting Year
 In relation to a corporation:
the year ending on the day on which the books and accounts of the
corporation are to be closed and balances;
 In relation to a company:
the period in respect of which any profit and loss account of the
company laid before it in annual general meeting is made up;
 In any other case:
» the year commencing on the 1st day of April; or
» if the accounts of an establishment maintained by the employer
thereof are closed and balances on any day other than the 31st day
of March, then, at the option of the employer, the year ending on
the day on which its accounts are so closed and balanced.
» Provided that an option once executed by the employer under
paragraph (b) of this sub-clause shall not again be exercised
except with the previous permission in writing of the prescribed
authority and upon such conditions as that authority may think fit.
[Section 2(1)]
6

7. Employee
 “Employee” means any person (other than an apprentice) employed on a
salary or wages not exceeding Rs.3,500 per annum in any industry to do
any skilled or unskilled, manual, supervisory, managerial, administrative,
technical or clerical work or hire or reward, whether the terms of
employment be express or implied. [Section 2(13)]
 Part time permanent employees working on fixed hours are employees.
Employer
 In relation to an establishment which is a factory, the owner or occupier
of the factory, including the agent of such owner or occupier, the legal
representative of a deceased owner or occupier, and where a person has
been named as a manager of the factory under clause (f) of Sub-section
7(1) of the Factories Act, 1948, the person so named; and
 In relation to any other establishment, the person who, or the authority
which, has the ultimate control over the affairs of the establishment
and where the said affairs are entrusted to a manager, managing
director or managing agent, such manager, managing director or
managing agent. [Section 2(14)]
7

8. Salary or Wages
 The “Salary or Wage” means all remuneration (other than remuneration in
respect of over-time work) capable of being expressed in terms of money,
which would, if the terms of employment, express or implied, were
fulfilled, be payable to an employee in respect of his employment or of
work done in such employment and includes dearness allowance (that is to
say, all cash payments, by whatever name called, paid to an employee on
account of a rise in the cost of living) but does not include:
 any other allowance which the employee is for the time being entitled to;
 the value of any house accommodation or of supply of light, water, medical
attendance or any other amenity or of any service or of any concessional
supply of food grains or other articles;
 any traveling concession;
 any bonus (including incentive, production and attendance bonus);
 any contribution paid or payable by the employer to any pension fund or
provident fund or for the benefit of the employee under any law for the
time being in force;
 any retrenchment compensation or any gratuity or other retirement
benefit payable to the employee or any ex-gratia payment made to him;
 any commission payable to the employee [Section 2(21)]
8

9. ESTABLISHMENT
 The word ‘establishment’ is not defined in the Act. Normally,
‘establishment’ is a permanently fixed place for business. The term
‘establishment’ is much wider than ‘factory’. It covers any office or
fixed place where business is carried out.
ESTABLISHMENTS TO INCLUDE
DEPARTMENTS, UNDERTAKINGS &
BRANCHES
 Where an establishment consists of different departments or
undertakings or has branches, whether situated in the same place or in
different places, all such departments or undertakings or branches
shall be treated as parts of the same establishment for the purpose of
computation of bonus under this Act.
9

10. Bonus–Eligibility Disqualification
for bonus
Every employee shall An employee shall be
be entitled to be paid disqualified from receiving
by his employer in an
bonus under this Act :-
accounting year,
bonus, in accordance (a) fraud; or
with the provisions of (b) riotous or violent
this Act, provided he behavior while on the
has worked in the premises of the
establishment for not establishment; or
less than thirty (c) theft, misappropriation
working days in that or sabotage of any property
year. of the establishment
10

11. Act not to apply to certain
classes of employees:
 Section 32 of the Act provides that the Act shall not apply to the
following classes of employees:
 Employees employed by any insurer carrying on general insurance
business and the employees employed by the Life Insurance
Corporation of India;
 Seamen as defined in clause (42) of Section 3 of the Merchant
Shipping Act, 1958;
 Employees registered or listed under any scheme made under
the Dock Workers (Regulation of Employment) Act, 1948 and
employed by registered or listed employers;
 Employees employed by an establishment engaged in any industry
called on by or under the authority of any department of Central
Government or a State Government or a local authority;
11

12.  Employees employed by :
 The Indian Red Cross Society or any other institution of a
like nature including its branches;
 Universities and other educational institutions;
 Institutions (including hospitals, chambers of commerce and
social welfare institutions) established not for the purpose
of profit;
 Employees employed through contractors on building
operations;
 Employees employed by the Reserve Bank of India;
 Employees employed by :
 The Industrial Finance Corporation of India;
 Any Financial Corporation established under Section 3, or
any Joint Financial Corporation established under Section
3A of the State Financial Corporations Act, 1961;
12

13.  Employees employed by :
 The Small Industries Development Bank of India established
under Sec 3 of the Small Industries Development Bank of India
Act, 1989;
 The National Housing Bank;
 Any other financial institution (other than Banking Company) being
an establishment in public sector, which the Central Government
may by notification specify having regard to (i) its capital structure;
(ii) its objectives and the nature of its activities; (iii) the nature and
extent of financial assistance or any other concession given to it by
the Government; and (iv) any other relevant factor.
 Apart from the above, the appropriate Government has necessary
powers under Section 36 to exempt any establishment or class of
establishments from all or any of the provisions of the Act for a
specified period having regard to its financial position and other
relevant circumstances and it is of the opinion that it will not be in
the public interest to apply all or any of the provisions of this Act
thereto. It may also impose such conditions while according the
exemptions as it may consider fit to impose.
13

14. Computation for Number
of Working Days
 An employee shall be deemed to have worked in an
establishment in any accounting year also on the days on
which,
 he has been laid off under an agreement or as permitted by
standing orders under the Industrial Employment
STANDING ORDERS ACT, 1946 or under the
INDUSTRIAL DISPUTES ACT, 1947 or under
ANY OTHER LAW applicable to the establishment;
 he has been on leave with salary or wages;
 he has been absent due to temporary disablement caused by
accident arising out of and in the course of his employment,&
 the employee has been on maternity leave with salary or wages,
during the accounting year
14

15. CALCULATION
OF BONUS
The method for calculation of
annual bonus is as follows:
 Calculate the Available Surplus.
 Available Surplus = Gross Profit –
Depreciation admissible u/s 32 of
the Income tax Act - Development
allowance
15

16. 1. Calculate the gross profit in the manner specified in
 First Schedule, in case of a banking company, or
 Second Schedule, in any other case.
2. Calculate the Available Surplus
 Available Surplus = Gross Profit – Depreciation
admissible u/s 32 of the Income tax Act -
Development allowance - Direct taxes payable for the
accounting year (calculated as per Sec.7) – Sums
specified in the Third Schedule + Direct Taxes
(calculated as per Sec. 7) in respect of gross profits
for the immediately preceding accounting year –
Direct Taxes in respect of such gross profits as
reduced by the amount of bonus, for the immediately
preceding accounting year.
16

17. 3. Calculate Allocable Surplus
 Allocable Surplus = 60% of Available Surplus, 67%
in case of foreign companies.
 Make adjustment for ‘Set-on’ and ‘Set-off’. For
calculating the amount of bonus in respect of an
accounting year, allocable surplus is computed after
considering the amount of set on and set off from
the previous years, as illustrated in Fourth
Schedule.
 The allocable surplus so computed is distributed
amongst the employees in proportion to salary or
wages received by them during the relevant
accounting year.
4. In case of an employee receiving salary or wages
above Rs. 3,500 the bonus payable is to be
calculated as if the salary or wages were Rs. 3,500
p.m. only.
17

18. Allocable & Available Surplus
 Allocable Surplus:
 in relation to an employer, being a company (other than a
banking company) which has not made the arrangements
prescribed under the Income-tax Act for the declaration and
payment within India of the dividends payable out of its
profits in accordance with the provisions of Section 194 of
that Act, 67% of the available surplus in an accounting year.
 In any other case, 60% of such available surplus [Section
2(4)].
 Available Surplus:
 It means the available surplus under Section 5.
{Section 2(6)}.
18

19. Available Surplus (Deductions)
 Direct taxes payable for the accounting year (calculated
as per Sec.7) – Sums specified in the Third Schedule.
 Direct Taxes (calculated as per Sec. 7) in respect of
gross profits for the immediately preceding accounting
year.
 Allocable Surplus = 60% of Available Surplus,
67% in case of foreign companies.
 Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating
the amount of bonus in respect of an accounting year,
allocable surplus is computed after considering the
amount of set on and set off from the previous years
19

20. Set On & Set Off
 Where in any accounting year any
amount has been carried forward and
set on or set off under this section,
then, in calculating bonus for the
succeeding accounting year, the amount
of set on or set off carried forward
from the earliest accounting year shall
first be taken into account.
 The allocable surplus so computed is
distributed amongst the employees in
proportion to salary or wages received
by them during the relevant accounting
year.
20

21. Set On & Set Off Provisions
 It may happen that in some years, the allocable
surplus is more than the amount paid to employees
as bonus calculating it @ 20%. Such excess
‘allocable surplus’ is carried forward to next year
for calculation purposes. This is called ‘carry
forward for being set on in succeeding years’. The
ceiling on set on that is required to be carried
forward is 20% of total salary and wages of
employees employed in the establishment. In other
words, even if actual excess is more than 20% of
salary/wages, only 20% is required to be carried
forward. The amount set on is carried forward only
upto and inclusive of the fourth accounting year. If
the amount carried forward is not utilized in that
period, it lapses [section 15(1)].
21

22. Set On & Set Off Provisions
 Similarly, in a particular year, there may be lower
‘allocable surplus’ or no ‘allocable surplus’ even for
payment of 8.33% bonus. Such shortfall is also
carried to next year. This is called ‘carry forward
for being set off in succeeding years’. Thus, in every
year, ‘allocable surplus’ is calculated. To this amount,
set on from previous years is added. Similarly, set
off, if any, from previous years is deducted. This
gives amount which is available for distribution as
bonus. The amount set off is carried forward only
up to and inclusive of the fourth accounting year. If
the amount carried forward is not set off in that
period, it lapses. [section 15(2)]
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23. Time-limit for payment of bonus
 where there is a dispute
regarding payment of bonus
pending before any authority
under section 22, within a
month from the date on which
the award becomes
enforceable or the settlement
comes into operation, in
respect of such dispute;
 in any other case, within a
period of eight months from
the close of the accounting
year:
23

24. Recovery of Bonus Due from an
Employer (Sec-21)
 Where any money is due to an employee by way of
bonus from his employer under a settlement or an
award or agreement, the employee himself or any other
person authorized by him in writing in this behalf, or in
the case of the death of the employee, his assignee or
heirs may, without prejudice to any other mode of
recovery, make an application to the appropriate
Government or such authority as the appropriate
Government may specify in this behalf is satisfied that
any money is so due, it shall issue a certificate for that
amount to the Collector who shall proceed to recover
the same in particular employee.
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25. RIGHTS OF EMPLOYEES
 Right to claim bonus payable under
the Act and to make an application
to the Government, for the recovery
of bonus due and unpaid, within one
year of its becoming due.
 Right to refer any dispute to the
Labour Court/Tribunal.
 Employees, to whom the Payment of
Bonus Act does not apply, cannot
raise a dispute regarding bonus
under the Industrial Disputes Act.
 Right to seek clarification and
obtain information, on any item in
the accounts of the establishment
25

26. Disputes under the Bonus Act
 Where any dispute arises between an
employer and his employees with
respect to the bonus payable under
this Act or with respect to the
application of this Act to an
establishment in public sector, then
such dispute shall be deemed to be an
industries dispute within the meaning
of the INDUSTRIAL DISPUTES
ACT, 1947 (14 of 1947), or of any
corresponding law relating to
investigation and settlement of
industrial disputes in force in a State
and the provisions of that Act.
26

27. Maintenance of Register,
Records & Inspectors
 Every employer shall prepare and
maintain such registers, records
and other documents in such
form and in such manner as may
prescribed.
 The appropriate Government
may, by notification on the
Official Gazette, appoint such
person as it think fit to be
Inspectors for the purposes of
this Act and may define the
limits within which they shall
exercise jurisdiction.
27

28. Inspectors Duties
 An Inspector appointed under sub-section (1) may, for
the purpose of ascertaining whether any of the
provisions of this Act has been complied with
 Require an employer to furnish such information as he may
consider necessary;
 At any reasonable time and with such assistance, if any, as he
thinks fit enter any establishment or any premises connected
therewith and require any one found in charge thereof to
produce before him for examination any accounts, books,
registers and other documents relating to the employment of
persons or the payment of salary or wage or bonus in the
establishment.
28

29. OFFENCES AND PENALTIES
 For contravention of the provisions of
the Act or rules the penalty is
imprisonment up to 6 months, or fine up
to Rs.1000, or both.
 For failure to comply with the directions
or requisitions made the penalty is
imprisonment up to 6 months, or fine up
to Rs.1000, or both.
 In case of offences by companies, firms, body
corporate or association of individuals, its
director, partner or a principal officer responsible
for the conduct of its business, shall be deemed
to be guilty of that offence, unless the person
concerned proves that the offence was committed
without his knowledge or that he exercised all due
diligence
29

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